## Statement of the IMF Staff Representative

## Source details

**Canonical URL:** [Statement of the IMF Staff Representative](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_111706.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_111706.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_111706.pdf.json)

---

### Medium-term challenges
- Poverty remains pervasive; growth is insufficient to substantially raise living standards and only few of the Millennium Development Goals (MDGs) have been achieved.
- Key priorities to bring people out of poverty, raise growth, and advance toward the MDGs:
  - Create an enabling environment for a vibrant private sector by improving the business climate and enhancing competitiveness via a stronger legal framework, a more developed financial sector, and large investments in human and physical capital.
  - Raise agricultural yields to increase resilience to exogenous shocks and break the cycle of poverty, improving food security and enabling education and employment diversification.
  - Finance development efforts without jeopardizing debt sustainability: despite debt relief initiatives, Rwanda’s small export base limits its capacity to carry external debt, implying a requirement for high and sustained levels of grants for the foreseeable future and mobilization of domestic revenue to eventually reduce dependence on donor funding.
  - Use aid productively while preserving macroeconomic stability: prioritize development needs, manage potential pressures for real exchange rate appreciation from large aid inflows by allowing more exchange rate flexibility, and strengthen expenditure management to ensure productive use of resources and improved public service delivery.
  - Maintain lasting peace and improved regional security as essential conditions for attaining development goals.

### Developments and performance under the PRGF in 2006
- Context and Fund relationship:
  - Rwanda supported by the Fund through financial and technical assistance since 1994, including a three-year PRGF arrangement during 2002-06 and a new three-year PRGF arrangement approved by the Executive Board in June 2006.
  - Rwanda reached the completion point under the enhanced HIPC Initiative in April 2005 and received US$76 million in debt relief under the MDRI from the Fund in early January 2006.
  - A recent mission concluded ad referendum discussions on the first review under the current PRGF arrangement and the 2006 Article IV consultation, with a possible Board date in January 2007.
- Macroeconomic outcomes and program performance:
  - Real economic growth in 2006 is likely to reach more than 4 percent, despite a weak harvest, driven by services and manufacturing.
  - Inflation was 9.3 percent in September 2006, reflecting increases in food and energy prices and the general price level.
  - All end-June 2006 quantitative performance criteria were met; indications that the program remained broadly on track through September 2006.
  - Fiscal policy was tighter than planned by about ¾ percent of GDP in the first half of 2006, mostly because revenue overperformed; strong revenue performance continued through September and September targets for the domestic deficit, net credit to government and arrears clearance were met.
  - Reserve money stayed within program limits at end-June and end-September 2006.
  - Monetary management was complicated by a large increase in private sector credit, partly driven by commercial banks’ aggressive lending practices.
- Structural reforms and milestones:
  - Public expenditure management:
    - Passage of the Organic Budget Law in August 2006.
    - Guidelines issued on bank reconciliation (end-October 2006 benchmark).
    - Detailed two-year action matrix for reforms outlined by the authorities.
    - A report issued monitoring project accounts showing inflows and outflows during the first half of 2006.
    - However, rolling spending plans for these accounts were not established until mid-2007 and the end-August 2006 performance criterion on monitoring of project accounts was not met.
  - External debt management:
    - Debt payments to BADEA confirmed, providing assurances against recurrence of external arrears.
    - External debt databases maintained by the Ministry of Finance and the National Bank of Rwanda reconciled (end-September 2006 benchmark).
  - Financial sector reform:
    - Central bank moved to strengthen banking supervision following the Financial System Stability Assessment.
    - Amendments to the banking law submitted to parliament in September to align the legal framework with international practices (end-September 2006 benchmark).
    - A meeting to determine the medium-term financial sector reform plan in coordination with donors expected in January 2007.
  - Business environment:
    - Draft laws submitted to cabinet in October 2006 on establishing a commercial registration agency and on protecting intellectual property (end-October 2006 benchmark).
  - Governance:
    - Lease contract signed with an international hotel chain for management of Prime Holdings’ two hotels.
  - Export promotion:
    - Movement into high-value niche coffee markets; three tea estates privatized in 2006.
    - Progress in the tourism sector and exports of handicraft.

### The agenda for 2007 (proposed program)
- Macroeconomic objectives and assumptions:
  - Real growth rate assumption: 4½ - 6½ percent.
  - Inflation target: returning to 5 percent.
  - International reserves: a level of more than four months of imports.
- Fiscal and external management:
  - With expected further scaling up of aid in 2008, program allows a one-off moderate draw down of reserves in 2007 to finance an increase in the deficit (excluding spending on peacekeeping and demobilization) by one percent of GDP.
  - Program allows a further widening of the fiscal deficit provided it is financed by grants and macroeconomic stability is maintained.
  - Central bank committed to step up sale of foreign exchange and allow an appreciation of the exchange rate to avoid rekindling inflation and crowding out of the private sector.
  - Limits on contracting of external debt (including concessional debt) to prevent renewed debt build-up.
- Policy priorities and structural focus:
  - Use higher grants to increase priority spending to progress toward the MDGs and enhance productivity, including increased funds for education and health and investments in the water and energy sectors.
  - Continue reforms in public expenditure management, debt management, and the civil service under the PRGF framework.
  - Promote private sector activity in coordination with the World Bank and other donors by removing obstacles to growth, improving competitiveness, and reducing costs of doing business.
  - Particular emphasis on financial sector and legal reforms, and on the agricultural sector as part of private sector development.

### Conclusion
- Rwanda has made significant progress since 1994 but faces formidable medium-term challenges.
- The IMF stands ready to work with the authorities and donors to design and implement a program to increase growth, reduce poverty, and advance toward the MDGs.
- The IMF encourages the authorities to further strengthen donor dialogue and looks forward to collaboration to improve future prospects for Rwanda’s children.

*Statement of the IMF Staff Representative, Kigali, November 22-23, 2006.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_111706.pdf_